Turkey's plunging currency roils markets

The country's economy has grown strongly in recent years, booking 7 per cent growth last year. Central banks in the rich world kept interest rates at or near zero for years, making it attractive for companies in Turkey to borrow in foreign currencies. Its economy has long shown signs of overheating. Inflation hit 15.9 per cent annually in June. The country has run a large trade and investment deficit with the rest of the world, buying more than it sells and relying on foreign investment and lending. That deficit can weigh on a currency, especially when foreign investment stops flowing in. As the currency weakens, it can make foreign investors pull their money out of Turkish stocks and bonds as their lira investments lose value. To do that, they have to sell lira - worsening the rout.

* What role has politics played?

President Recep Tayyip Erdogan has urged the central bank to not raise interest rates. The central bank appears to have heeded Erdogan and has not raised rates when many - including the International Monetary Fund - have urged it to. That drained investor confidence in the central bank, leading to a further sell-off of the currency. It hasn't been helped by Erdogan's decision to name his son-in-law as finance minister. The decision by the Trump administration to double tariffs on Turkish steel and aluminium has caused a further drop in the lira.

* How is the fall in the lira a problem?

It is a problem for Turkish businesses and banks that get revenues in lira and owe money in dollars or euros. The rising interest rates in the US exacerbate the problem. The sudden fall raises the possibility of corporate bankruptcies or bank failures. There are some concerns about whether European banks would suffer losses on loans in Turkey. The rising interest rates in the US exacerbate the problem.It has affected even the Australian dollar, which has fallen to an 18-month low on Monday, over fears of a crunch in emerging markets.